Economic Fallacy of the Day: Elizabeth Warren

When it comes to propagate economic fallacies, Senator Elizabeth Warren has very few equals. In a recent CNN Money interview, she parroted her three main ones: financial regulations, student loans and minimum wage. Time for people to see through her faulty logic.

First of all, financial regulations are what caused the 2007 crisis in the first place. It was so obvious that Ron Paul saw it coming in… 2001. It was also obvious to bankers well learned into the ways of economics and human choice like John Allison of BB&T bank. In his book, he shows how much power-tripping bureaucrats arbitrarily apply rules (or not), and then blame people for following the said rules. He also tells the story of housing regulations.

It’s been going on for quite a while. Among others, the Community Reinvestment Act (CRA) compelled banks to grant mortgages to lower income people by using “‘innovative or flexible’ lending practices to their address credit needs”. This request was consolidated when the Clinton administration pushed Fannie Mae, a government-sponsored enterprise that guarantees mortgages, to increase home-ownership further, creating the subprime market. It was fine with low interest rates, but once they started increasing… These regulations are the fine prints she is talking about. Finally, traffic can work fine (if not better) without traffic lights.

Second, her ideas on student loans will just inflate the bubble even more. Besides this idea that government should subsidize higher education is a ridiculous one. Not only aren’t people entitled to it – it comes from the human mind and must therefore be compensated -, but what ever are we going to do with 50 k sociologists? political scientists? English majors? Why can’t politicians accept that people can be happy and productive by being plumbers, electricians or even business people?

Finally, “No one should work full time and still live in poverty” shows how little she understands basic economics. In our world of fiat currency and quantitative easing, working full-time means nothing if you can’t afford basic necessities.

Also, however irritating this statement might be to her, it still stands true: Wage is determined by supply and demand. Working in retail requires minimal abilities and training (and is rather risk-free) and therefore pays fewer dollars than truck drivers or dentists. Increasing the minimum wage as she wishes would simply put the least skilled people out of work as their job will be automated.

Finally, she won’t make me shed a tear about her situation. For the greatest part of my youth, we were five people living off my mom’s salary (she was an auxilary nurse), and it wasn’t that great. I’m sure I don’t even know about half the sacrifices my parents had to make for the three of us so we could still live in our house and not go on welfare – they told me their first trip together was over 16 years after their honey moon. We weren’t rich, but we were never hungry and could even afford a few extras like sports or languages in school. Nothing is impossible to a brave heart, as we say in French.

In short, my 18-months-old nephew would better understand economics than Senator Warren. She believes that government is the cure, but it’s really the disease. Without its power to change incentives, there would be no nation-wide economic bubbles

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I am best described as a gray sheep (i.e. not fitting anywhere): I'm gay, I listen to rock/hard rock/video game music, my diet (no grain, lots of saturated fats and animal proteins) would give Michael Bloomberg a heart attack, my only cleaning products are baking soda, vineagar and bleach and I wear the same clothes more than once